Hello, I need help with a park evaluation. Here are the numbers. 15 lot park public water and sewer. The owner lives in the park. 14 POH’S all rented to Long term elderly tenants. The park grosses $87k with expenses of $39k. The park pays for heat for the tenants at $11k and a manager at $8k yearly. The water and sewer seem to be in line. The owner is asking $269k and will carry 15% on a second as I will need financing. Thoughts
Its small and with all those POH you are going to have a plan in place ( preferably to convert to tenant owned homes). There could be some turn over especially with the tenants being elderly. When you say park pays for heat, does that mean the park is master metered for gas? Looks like the average rent is around 500 ish. What is the prevailing market lot rent ? Financing might be tricky for something like this so he may have to finance. What kind of shapes are the home in ? When you say the water and sewer costs are in line, does that mean the park is paying for it?
With decent homes, city utilities ( with potential upside in bill back ) possibility of owner carry, market rent there might be something here if you are fine with a project. There are a lot of worse places to start from than a deal like this
14 Occupied Lots
$517 / Total Rent generated per space
Let’s say you assign a lot rent value of $300 / space.
The bank will be looking at the value of the park based on the land.
Let’s assign a 40% expense ratio because of the heat being paid by the manager.
That brings you to an annual NOI of $30,000
Let’s say given the size of the park it’s a 12% Cap.
That puts a value of: $252,000.
The bank gives you a 65% LTV (size) and that puts you at:
$163,800 Loan (5%, 20 year am, 10 year term - these are just guesses…)
PMT of $13,000 / year
Downpayment needed: $105,200
Second Mortgage: $15,780
Owner carries 15% at 4%, 5 year am
PMT of $3,487 / year (he might a faster am for that small of an amount
$87K total revenue
$39K expense (44%)
You have $89,420 in equity you need to come up with.
And you’ll have to include other costs - bank fees, closing fees, title insurance, 3rd party reports that the bank requires + infrastructure improvements you want to do.
So maybe you’re in for $100,000.
31% CoC looks good from a financial calculation basis but some things I’d be worried about:
- Will the bank want to loan on a park this small with that many park owned homes? I haven’t deal with smaller deals like this so I’m not sure what the rates, terms would be. Most of the lenders I’ve dealt with had minimum loan size threshholds of at $300,000 or more
- Can you run the park at a 44% expense ratio with 14 POHs? What are the age and condition of the homes? How long before you have to start to replace them? What will that replacement costs be? How much should you be putting aside to account for that? How does that affect your budget and cashflow numbers?
- As the other poster mentioned, if it’s master metered… that might be more infrastructure risk than you want to carry on a park this small.
- Is there opportunity in this area long term? Do you see demand continuing to rise over time?
- Are your elderly residents on fixed incomes and would it be difficult to raise rents to capture upside and also to keep up with inflation?
A whole lot of speculation above ^^ What’s the old saying? Garbage in, garbage out? Some of my assumptions may be way off but it’s at least one way to view this investment and you can always plug in your numbers but still use the same analysis process.
Good luck with the opportunity! I hope it works out for you.
Thanks all! To clarify the owner of the park pays the heating oil for all the tenants, not sure why. This isn’t normal here and would stop if we purchase it. The homes are older and replacement would be costly. The owner is older and wants to move out of state to be with family. He cannot carry the entire financing as he has a mortgage.
If you find a bank that will loan on this project, please come back and tell us all who they were, as there are TONS of smaller deals like this in the world and I haven’t ever had a bank express interest. To me, this is a 15-20% down, 80-85% seller-financed deal or I would walk. I want the seller as my partner, more or less, and caring about what happens to the park after I sell.